(Reuters) - When Edward Hu bought a holiday home in Portugal's most popular tourist spot in September, the Chinese agricultural entrepreneur got a Europe-wide family travel permit thrown in for as long as he owns it.
"It's one of the biggest advantages of investing in Portugal," says Hu, 33, from Chengdu in southwest China, who paid 560,000 euros ($750,700) for a semi-detached property near the beach in the southern Algarve.
The beaches were once enough to lure buyers to southern Europe. A shattering economic crisis later, Spain and Portugal are trying to resurrect their moribund property markets by offering "golden" residence permits to home buyers from outside the European Union.
Buyers from China, Russia, the Middle East or elsewhere who spend at least 500,000 euros on real estate in either country get a permit that lets them travel freely within Europe's 26-country Schengen zone without restriction.
The incentives, along with depressed housing prices, are showing the first signs of nibbling at the huge market glut of 3 million empty homes on the Iberian peninsula.
The Portuguese government said last week that 318 permits had been issued since the programme began a year ago, bringing in 200 million euros in investment - most of it in residential property in the last few months - and expected it to reach more than 300 million euros by December. That would exceed an estimated 250 million euros invested in all real estate in Portugal last year according to Cushman&Wakefield consultants.
"There's a growing interest in the golden visa programme, and a lot more of it materialising in actual deals than before," said Maria Empis, a consultant at Jones Lang LaSalle real estate firm. Last month it sold a large commercial property in downtown Lisbon to a private Chinese investor seeking the permit.
Pine Cliffs Resort in the Algarve offers beachside apartments from 780,000 euros, stretching to villas for over 4.5 million. Sales director Karin Van Den Hemel says the number of inquiries about properties has increased substantially, particularly from those seeking a golden visa.
Spain, where the property market was bloated by a pre-2008 construction boom that turned to a 35 percent price crash, introduced a scheme similar to Portugal's last month.
"The prime areas are Barcelona, as the city appeals to business people, and resorts like Marbella," says Christian de Meillac, who is in charge of Iberia for real estate agents Knight Frank. "What's also promising is that quite a few are buying above the minimum limit."
Greece has also followed Portugal's example this year, offering similar visas on 250,000 euros in property purchases, while Malta offers citizenship with investment of 650,000 euros.
CHINESE, RUSSIANS TARGETED
The most eager customers, real estate agents and lawyers say, are Chinese and Russians, who have been flocking to Europe for their holidays for more than a decade.
In Spain, adverts for homes and other tourist attractions are being translated for Russian and Chinese property portals.
Websites in China and Russia offering properties from 80,000 euro flats to 15 million euro villas tout Spain's and Portugal's beaches, bars and restaurants, cultural attractions and universities, plus close air links to European capitals.
"Spaniards are very interested in selling to the Chinese. The reality is that right now in Spain they're interested in selling to whoever," said Araceli Morales from company Vender A Chinos (Sell to the Chinese), which translates adverts.
Chinese buyers are attracted by city and holiday property outside their own overpriced market, where they cannot hold land rights indefinitely, as a means to diversify their assets. They are also taking advantage of the yuan's strength against the euro, according to the Hispanic-Chinese Business Council.
"This is a good choice to safeguard my investment because of the currency fluctuations," said buyer Hu. He expects the residence permit for him, his wife and his son to come before the end of the year.
For now, he plans to travel to Portugal once a year for two weeks, mostly for holidays, but hopes to start doing business in Europe, which would require more frequent trips. After six years, during which he has to spend just seven days annually in Portugal, he will be eligible for Portuguese citizenship, which Hu says is an attractive option to consider.
Investors have to spend a minimum of seven days in Portugal a year to qualify for permit extensions. In Spain there is no such limit, but one annual visit is compulsory.
Real estate agents say many Russians are interested in holiday homes to own or to rent out, while others seek peace of mind about visa-free travel or have an eye to leaving their country eventually.
Vladimir Sychov, 37, an advertising manager in Moscow, says he wants to have the chance to move to Europe should relations between the West and Russia deteriorate. He is buying a 510,000-euro beach apartment with some help from his in-laws. "One had better have a back-up plan ready," he said.
Vyacheslav Eshanu, head of PortugalEstate, a firm with offices in three Russian cities and in the Algarve, has so far struck five golden visa deals and says there is a steady demand for bargains from the Russian middle class.
"The golden visa seekers mostly buy just at the 500,000 euro limit. In fact, a 350,000 limit would be better," said Eshanu, adding that stories of Russians buying villas for millions in cash may be a thing of the past.
Under the golden visa law, the purchase money has to be transferred to a local bank and its origin explained to the Bank of Portugal to prevent money-laundering. Residence permits are only extended as long as property of the same value remains in the hands of the same person. Buyers also face normal local property taxes.
TAX INCENTIVES FOR PENSIONERS
Portugal has another trick up its sleeve to lure foreign buyers, mostly from northern Europe - tax exemptions to pensioners coming to live in Portugal, as long as their pensions are paid from a foreign source.
"Basically, it means that pensions are not taxed either in their country or here, so it's a huge benefit," said Luis Filipe Sousa, manager at PwC consultants. The firm touts Portugal's taxation for foreigners as "Europe's best-kept secret" in a brochure.
Indeed, the government has been shy to advertise lower taxes for foreigners while it is applying huge tax hikes and cuts in pay and pensions for its own people under the terms of its EU/IMF bailout.
"But one has to see the overall benefits; we are talking about foreigners of some means who otherwise would not come here to buy property, cars, consume, create jobs," Sousa said.
The tax rule was formally introduced by law in 2009, but was plagued by glitches and a lack of coordination that prevented it from working properly until this year. It also offers a low 20 percent flat income tax rate to foreigners living in Portugal for up to 10 years - a similar rule to Spain's so-called "Beckham Law".
There are already more than a thousand people registered under these rules in Portugal - mostly retirees from Scandinavia, France, Germany and Britain.
"I think it has the potential to draw thousands more," Sousa said.
Credit: Reuters/Jose Manuel Ribeiro
